GE will partner with the innovative Southern California venture capital firm Frost Data Capital on a business incubator focused on machine data, predictive analytics and the Industrial Internet. “Frost is looking to incubate really big problems that drive revolutionary change,” says Bill Ruh, vice president of GE Software. “That’s how we found them.”
The incubator, called I3 for Industrial Internet Incubator, practices lean methodology techniques that allow its startups to scale quickly. GE and Frost Data executive teams will start by identifying ideas for potential new businesses. “We don’t look at outside business plans like a typical VC,“ says John Vigouroux, managing partner and president at Frost Data Capital. “We validate the ideas through the marketplace and with real customers. This is our expertise. If the problems are genuine opportunities for startups, we’ll start a company and hire a CEO.”
Vigouroux says that this approach allows Frost Data to start companies with a small amount of capital and operate them more predictably. “It’s a great model, not a home run-or-bust model,” he says. “Since we don’t need gobs and gobs of money, we can do singles, doubles, triples, whatever works for the customer. We think that seven out of 10 startups could grow up to be successful.”
The partners did not disclose the amount of funding behind I3, but Vigouroux says that the incubator is designed to participate in any financing round. I3 will be incubating and taking to market several companies simultaneously. Big Data pioneer Stuart Frost, who started Frost Data after he sold his company Datallegro to Microsoft for $275 million in 2008, calls this model “parallel entrepreneurship.”
Besides business ideas, GE brings to the incubator its expertise in predictive analytics and experience with “intelligent” machines connected to the Industrial Internet. “We will bring them the problems, the customers and industrial capability,” Ruh says. “We believe that this will move the [analytics] market even faster and give customers what they are looking for. The first mover advantage is also very important.”
Frost Data has started 17 companies so far, with GE investing in three of them. Ruh says that GE and Frost Data have already started five new companies over the last 60 days alone. He said that a big company like GE could not move so fast by itself. “We’ve discovered someone who is really good at this,” Ruh says.
The initiative could have multiplier effect on the growth of the Industrial Internet. The Wall Street Journal pointed out yesterday that the value of the Industrial Internet will increase as more people and companies get connected to it, following Metcalfe’s law.
“Just like the development of the commercial Internet, that will require investment and innovation from lots of different people and companies,” the paper wrote.